Harry Potter and the Nominee for Commissioner

We occasionally write reminders that the comments to our posts provide a rich source of additional information. This is especially true when frequent commenter Bob Kamman takes hold of a topic and does the background research that we do not do. Bob has two comments on the post about Chuck Rettig, the President’s nominee for IRS Commissioner, that we are elevating to a post in order to make sure that a broader audience benefits from his work. It seems that, if confirmed, Mr. Rettig could indeed perform magic at the IRS as you will learn in reading Bob’s research.

In addition to the comments Bob made, we are receiving a lot of comments this month from individuals hurt by the way we carry out offsets under the current system. I wrote a post in December of 2015 on the topic of refund offset bypass that is our all-time most viewed post. Each year at this time, we get hundreds of hits every day from individuals searching the internet to try to understand why they are not receiving their refund or who seek to understand and use the bypass procedure in order to avoid the offset. Most often, the failure to receive the refund results from the offset of the refund to another federal or state obligation. This year we have received a number of comments from these individuals showing the harshness of the procedure because it frequently captures the earned income credit designed to provide a benefit to lift individuals, usually with qualifying children, out of the depths of poverty. Refunds of the earned income credit get offset just like “regular” tax refunds even though the purpose of these refunds differs significantly from the return of money paid into the system. The comments point to the need to rethink this system. Keith

As noted, some IRS observers believe the best choice for Commissioner of Internal Revenue is an experienced executive with public and private experience, while others believe the best choice is a lawyer with tax expertise and experience dealing with IRS from outside the system.

Both groups are wrong, of course. But until a tax law professor is nominated and confirmed, it might be best to alternate between the two types, as will happen when Charles Rettig earns Senate approval.

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Most tax professionals will consider it in his favor, that he has sat at his Beverly Hills desk or conference table to advise clients on litigation when they disagree with IRS. They may not have the same issues as those of us who deal with middle-class or low-income taxpayers, but the procedures and judges are the same.

I came across four Tax Court cases in which Mr. Rettig appeared. There is a win, a loss, and a draw. He even inspired some wordplay in an opinion by Judge Mark Holmes.

Here are the cases:

In Corbalis, 142 TC 2 (2014) blogged by Leslie Book at Mr. Rettig was one of four lawyers with whom the Tax Court agreed, ruling on a motion for summary judgment, that Tax Court review provisions of section 6404(h) apply to denials of interest suspension under section 6404(g). IRS had taken the position that the court review provisions of 6404(h) applied only to final determinations relating to 6404(e), dealing with abatement claims running from IRS ministerial or managerial mistakes. The Tax Court held that it does have jurisdiction to review an IRS determination that the suspension period does not apply.

This case illustrates that the wheels of justice often grind slowly. The case is still on the Tax Court docket. After the Court decided it has jurisdiction, the last filing is an October 26, 2016 status report filed by the petitioners. There are two related cases involving the same petitioners. In Docket No. 008220-13, the last filing is apparently the same status report. In Docket No. 027306-14, the petitioners filed a status report on September 1, 2017.

In Canterbury Holdings, TC Memo 2009-175 Mr. Rettig’s clients lost on the issue of whether $987,040 in LLC “management fees” were deductible, but won their argument that Section 6662 accuracy-related penalties should not be assessed. (Mr. Rettig was not involved in the preparation of the return. It was done by a KPMG partner who was a CPA and lawyer with more than 40 years of experience.)

Judge Holmes in a footnote gave some history of “limited liability companies,” even in 2009 a somewhat novel creature in tax litigation. But that was not until he used some equine references that frankly went over my head. It might be because “Canterbury” is the name of a horse racing track in Minnesota — not one with which I was familiar during my college days when I worked on a Chicago newspaper’s horse-racing results desk. Judge Holmes wrote:

“Christopher Woodward, David Teece, and Kenneth Klopp were partners in Canterbury Holdings, LLC. Canterbury mounted a takeover of an old New Zealand clothing company in 1999. Its ride turned rough, and the shell company that Canterbury was using had to pony up more money in 2000 and 2001 to make the deal go through. That money actually came from Canterbury itself, but Canterbury argues that these payments are deductible nonetheless. The Commissioner disagrees, and would also saddle Canterbury’s partners with an accuracy-related penalty.”

Then there are two estate-tax cases in which Mr. Rettig represented executors. The first, Estate of Trompeter, TC Memo 1998-35 contains many useful facts about the valuation of large coin collections, if you want to wade through its 68 pages. However, the petitioners lose on most, if not all points, and are assessed a penalty:

“After our detailed review of the facts and circumstances of this case, in conjunction with our analysis of the factors mentioned above, we conclude that respondent has clearly and convincingly proven that the coexecutors filed the decedent’s estate tax return intending to conceal, mislead, or otherwise prevent the collection of tax. We also conclude that section 6664(c) does not insulate the estate from this penalty; we find no reasonable cause for the underpayment, nor that the estate acted in good faith with respect to the underpayment. We sustain respondent’s determination of fraud.”

Keep in mind that even serial killers are entitled to competent representation.

The other estate-tax case is Estate of Gimbel, TC Memo 2006-270. In a 28-page opinion, Judge Swift listened carefully to the arguments of both sides concerning the valuation of a large block of publicly-traded Reliance Steel and Aluminum Company. The estate suggested a 20.72% discount, and IRS recommended only 8%. The Court’s solution was 14.2%. No doubt it was just coincidence that this was almost exactly halfway between the two positions.

Commissioner-designate Rettig should also be applauded for his history of media availability. Many tax practitioners are reluctant to speak to journalists about tax issues. Between 2000 and 2004, he was the go-to guy for columnists Kathy Kristof and Liz Pulliam Weston of the Los Angeles Times, whose financial-advice columns were widely syndicated to other newspapers.

In May 2004, for example, Ms. Kristof quoted him in a column about IRS efforts to settle “Son of Boss” cases by waiving penalties for those who voluntarily settled. Mr. Rettig told her, “If you look at the effort of trying to chase those people versus opening the door and letting them come in, this makes a lot of sense.” Commenting on other amnesty programs, he added “there are a lot of wannabe taxpayers who just don’t know how to get back into the system. When you provide some incentive for people to come forward, you find a tremendous number of folks step up to the plate.”

In August 2000, he had offered Ms. Weston some rather colorful advice: “If the taxpayer buries his head in the sand and ignores the liabilities, as the saying goes, the only place left in the air to kick is going to [get] hurt. No one should wait for the IRS to knock on their door before attempting to rectify the situation.”

In May 2008, Mr. Rettig was quoted by Tom Herman of the Wall Street Journal in an article headlined “Offshore-account holders bite their nails.”

“People are having trouble sleeping at night. They don’t want to go to prison.” . . . If you have an offshore account with unreported income, you “should definitely be worried,” says Mr. Rettig, who represents a number of clients with such accounts. And if you have an account in Liechtenstein, you should “lawyer up immediately.”

A final note: in December 1997, Charles and Susan Rettig of California, pro se, filed a Tax Court petition at Docket No. 023484-97. The case was closed with a stipulated decision in December 1998. Visitors to the Tax Court archives in Washington may be able to determine whether these Rettigs are related to the current nominee.

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More about Charles Rettig, including his membership in the Academy of Magical Arts, here and his history of political contributions, here.

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Comments

I got to know Chuck Rettig a bit from unfortunate circumstances. A very close work colleague had need to hire Chuck for a criminal tax matter. I happened to run into Chuck at the IRS National Tax Forum in Las Vegas a few years back and we had a really good discussion about the case.

I’ve known of Chuck for many years and he is one of the finest tax practitioners in the country. I have no doubt whatsoever that if confirmed, he will be not a good, but a truly great IRS Commissioner.

My research into Middle English literature has led me to a Mobil Oil moment in understanding Judge Holmes’s horse-themed comments in the Canterbury opinion. Canterbury, of course, brings to mind the Tales written by Geoffrey Chaucer in the 14th Century. But what is the connection between horses and those stories, told by pilgrims on their way to a religious shrine 60 miles east of London? Well, the pilgrims travel on horseback, and Chaucer’s descriptions of their horses add substance to their characters.

This connection between Canterbury and horses may be apparent to lawyers of Judge Holmes’s and Mr. Rettig’s intellect, but it flew over my head like Pegasus. You know, the winged horse of Greek mythology and former Mobil Oil trademark.

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Leslie Book

Keith Fogg

T. Keith Fogg is a Clinical Professor of Law at Harvard Law School where he started a tax clinic in 2015. Prior to joining the faculty at Harvard, he began his academic career at Villanova Law School in 2007 after working for over 30 years with the Office of Chief Counsel, IRS. Read More…

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